OMB provides guidance on executive order on regulations

President Trump’s executive order on federal regulations (commonly known as the “two-for-one” order) continues to generate questions about its effect on tax regulations. IRS officials have said that the IRS is reviewing the executive order. Meanwhile, the Office of Management and Budget (OMB) has released a memorandum about the executive order and opponents have filed suit in federal district court.

Executive order

The executive order (officially titled “Reducing Regulation and Controlling Regulatory Costs”) provides that whenever a federal agency proposes for notice and comment or otherwise promulgates a new regulation, the agency must identify at least two existing regulations to be repealed, unless prohibited by law. Further, for fiscal year (FY) 2017, the heads of all agencies are directed that the total incremental cost of all new regulations, including repealed regulations, to be finalized this year must be no greater than zero, unless otherwise required by law or consistent with advice provided in writing by OMB.

Significant regulatory actions

The February 2 memorandum by OMB explains that the executive order applies to significant regulatory actions an agency issues between noon on January 20, 2017, and September 30, 2017, and to those agencies required to submit significant regulatory actions to OMB’s Office of Information and Regulatory Affairs (OIRA) for review. In 2016, the Government Accountability Office (GAO) reported that “few tax regulations are deemed significant by OIRA.” According to the GAO, “between 2013 and 2015, only one of more than 200 tax regulations issued was determined to be significant (T.D. 9668, I.R.B. 2014-36, 482, Regulations Governing Practice before the Internal Revenue Service).”

After President Trump signed the executive order, IRS officials indicated they are reviewing its impact on the Service. Wolters Kluwer has asked the IRS for clarification and comment but did not receive a response by press time.

Bundling regulatory and deregulatory actions

Generally, regulatory and deregulatory actions can be bundled in the same regulatory action, OMB explained. “In practice, many regulatory actions can both impose new requirements and remove or streamline existing requirements on the same regulated entities and within the same regulatory program.” OMB cautioned agencies “to avoid artificially bundling provisions that are not logically connected in a single regulatory action.”

Legal challenge

Three organizations have asked the U.S. District Court for the District of Columbia to declare the executive order invalid. According to the complaint, “to repeal two regulations for the purpose of adopting one new one, based solely on a directive to impose zero net costs and without any consideration of benefits, is arbitrary, capricious, an abuse of discretion, and not in accordance with law.” The executive order, they argue, “forces agencies to repeal regulations that they have already determined, through notice-and-comment rulemaking, advance the purposes of the underlying statutes.” (Memorandum for Regulatory Policy Officers at Executive Departments and Agencies and Managing and Executive Directors of Certain Agencies and Commissions, February 2, 2017; Public Citizen, Inc. v. Trump, Case 1:17-cv-00253, February 8, 2017; Government Accountability Office, GAO-16-720, Regulatory Guidance Process, Treasury and OMB Need to Reevaluate Long-standing Exemptions of Tax Regulations and Guidance Report to Congress, September 2016.)